Retail Revival: India to see another 8-9 million sq ft of new retail supply in 2018

The year 2017 is known to be the second best after 2011 in terms of net absorption in the retail sector and here's why: It saw the completion of around 6.4 million sq ft of new shopping malls across the country and expansion by both international and national retailers.

'With data of the past 20 years in developing and managing shopping malls, the sector is now witnessing an over 70-80 per cent success rate compared to a failure rate of around 70 per cent in the first decade of its life-cycle,' says Vishal Mirchandani, CEO, Commercial & Retail, Brigade Group.

What's driving the mall spree? The retail sector in India is spiralling upwards with many factors contributing to the surge. With rising consumerism and flexible retail policies, international brands today see India as one of the most promising and yielding markets. 'We have already witnessed a strong trend in this segment with major international brands already having started their retail operations in India over the last eight years or so,' says Mirchandani. 'This will induce developers to launch new malls, and with store size requirements being significantly higher for multinational retailers, it will encourage mall developers to build larger malls along with sufficient mall infrastructure. The competitive environment is likely to enhance the productivity and efficiency of domestic retailers; as a result, retail sales will improve significantly.'

'India has become the topmost retail destination on the back of favourable foreign investment environment, strong economic growth and a consumption boom,' says Pankaj Renjhan, Managing Director-Retail Services, JLL India. 'There has been development of international-standard shopping malls in the past couple of years, along with increasing global investment in retail assets in recent times.'

Vivek Kaul, Head, Retail Services, India, CBRE South Asia, lists the factors that have led to the rise in absorption of retail space across key cities in India. 'Delivery of newly constructed large malls in key markets after a break of two to three years, for example, Seawoods Grand Central in Navi Mumbai, Vega City in Bengaluru and Palladium in Chennai, to name a few. The aggressive expansion by anchor tenants including fashion retailers, multiplex operators and hypermarket operators has also contributed to large-scale absorption of retail space. Further, the churn of leases at operational malls, as lease terms of existing tenants matured, also opened up supply and led to absorption through fresh leasing of existing stock in malls. And the relaxation of FDI norms for retail and overall growth of the sector in India has led to several global brands expanding their existing footprint, while others are now entering the country and establishing their presence here.'

US$ 1 trillion by 2022! In 2018, around 8-9 million sq ft of retail supply is expected to get operational. 'Shopping malls are expected to come up in Bengaluru, Chennai, Delhi-NCR and Hyderabad,' says Renjhan.

Going forward, supply of quality shopping mall space will be limited, which will provide a good opportunity for shopping mall development, believes Mirchandani. A strong consumption-led growing economy like India only makes the story more attractive with the size of the retail industry expected to cross $1 trillion by 2022. Tapping this market potential, Brigade Group is looking to extend beyond Karnataka to Kochi, Hyderabad and Chennai as potential markets for its shopping centre development. With already two operating malls, the group plans to launch its third shopping mall in a year. 'We expect to have seven to eight shopping malls operational over the next 10 years, which itself will have a potential to deliver annual retail sales in excess of $1 billion,' adds Mirchandani.

Prestige Group currently operates in seven cities with eight successful mixed-use developments. 'We plan to have 20 more malls (operational as well as signed-up properties) by 2020 in 10 cities spanning a total of 11 million sq ft of retail space, with a retail assortment of over 3,000 brands, serving about 150 million guests,'says V Muhammad Ali, COO, Prestige Group Retail. The group's Forum Shantiniketan is slated to open in 2018, while Forum Falcon City in Bengaluru, Forum Kochi and Forum Kakkanad are under development.

Inorbit presently has five operational malls in Mumbai, Bengaluru, Hyderabad and Vadodara. 'We are actively considering expansion possibilities through acquisition or greenfield development across major cities,' says Rajneesh Mahajan, CEO, Inorbit Malls (India). 'We are looking at doubling our portfolio from 2.5 million sq ft to 5 million sq ft in the next five years.'

Contemporary designs Design plays an important role in the success of a mall, which needs to create an intuitive circulation, sense of space and allow brands to display themselves in a manner to highlight products. 'At Inorbit, we are making efforts to provide an aspirational shopping experience catering to the social needs of our consumers,' says Mahajan. 'Malls are places for socialising; considering this trend, we are assigning more space for F&B and entertainment.'

Every mall of Forum goes through a unique journey of design and architecture. 'With each new development, we take special efforts to customise the design in ways to incorporate the local flavours of the cities or catchment,' says Ali. 'For instance, our newest property, the Forum Centre City in Mysuru, reflects the richness and traditions of the city, right from the fatade to the walls and flooring.' The mall's architecture interprets local and national culture in modern light, chiefly through five elements of design.

Contemporary shopping centres are being designed to meet the needs of the digital world as well as provide an exciting shopping experience. 'Destination-oriented malls are able to provide a better shopping experience and infrastructure, which has, in turn, tilted mall development activity to create more dominant shopping centres,' says Mirchandani. 'We are witnessing the reorganising and energising of shopping malls not just in India but the rest of the world as well, which augurs well for the sector.'

Metros vs. Tier-II/III towns The rapid rate of urbanisation means that growth in the retail sector is moving beyond the metro cities to Tier-II and Tier-III cities with hectic activity being witnessed in shopping mall development and heightened interest from investors including foreign investment funds in these markets.

'To meet the potential of these markets, retailers are making adjustments to their store sizes, which tend to be smaller in Tier-II and Tier-III cities, merchandise mix in terms of design and price, etc. There is good momentum to build a competitive advantage in these markets by various stakeholders,' explains Mirchandani. 'Over the past decade, cities such as NCR-Delhi, Mumbai and Bengaluru have shown prominent growth in retail stock, while Hyderabad, Pune, Chennai, Kolkata and other cities and towns are rapidly emerging as the retail growth corridors of the next decade.'

Shopping mall stock is projected to grow strongly in the next three to four years in the top seven cities of India as around 20 million sq ft of supply is expected to come up by 2020. 'As of now, the majority of stock is concentrated in Delhi-NCR, Mumbai and Bengaluru,' says Renjhan. 'However, Tier-II and Tier-III cities are also likely to see heightened interest from both retailers and investors.'

Mall developers are also seeing huge potential in Tier-II and Tier-III cities. Says Ali, 'The retail sector in Tier-II and Tier-III cities witnessed a much higher investment of $6,192 million between 2006 and 2017 as against $1,295 million that came to Tier-I, metro cities during the same period.'

Mahajan believes a lot of Tier-I and Tier-II cities are yet to see good quality malls. 'The captive business opportunity is lucrative in these cities to set up mid-size malls,' he adds.

'We are working on some of these cities like Nashik, Nagpur, etc.'

Investment opportunities With retail expected to become a $1-trillion industry by 2022, it presents huge broad-based opportunities for shopping mall developers, retailers, investors, customers, manufacturers and service providers. What's more, the retail sector is among the top three employers in the country. Adds Mirchandani, 'Retailers and private equity (PE) firms have started taking an increased interest in the Indian retail sector through investments in quality retail malls.'

Recently, major investments took place in cities such as Mumbai, Pune, Bengaluru, Amritsar, Indore, Ahmedabad and Chandigarh, says Renjhan. 'As the inherent growth potential is quite robust in the long run, investors anticipate realising healthy returns by investing in shopping malls. So, international PE players are investing in retail assets and creating a portfolio of assets.'

Increasing instances of institutional and PE investment in retail real estate, especially in Tier-I and Tier-II cities, has given a major thrust to the malls in these markets. 'Grade-A projects, which are strategically located, have a good design and zoning plan, fair brand mix and an overall potential for being turned around for higher profitability, have witnessed investments from PE investors,'

says Kaul. 'Increase in demand for quality space from retailers, who wish to enter and harness the potential of Tier-II and Tier-III cities, have also led to an increase in supply as well as rentals in these cities.'

The lucrative impact of REITs With retail assets becoming more lucrative thanks to the impending launch of real-estate investment trusts (REITs) in India, the ticket sizes of investments into retail real estate have been enhanced and investment activity has picked up pace. 'Investors are undertaking the necessary upgrades after acquiring the right retail assets. Interestingly, such investors are opting for both new mall projects as well as operational ones,' says Mirchandani. 'While the Indian mall developers bring in their development and market expertise, international investors contribute their experience through their exposure to international markets through their investments as well as provide the larger, more strategic, long-term capital to the sector in India, which is much needed. This provides a good base to create successful investments, which could at an appropriate stage get converted as a REIT and provide more stable returns to their investors over a longer period of time.'

Construction and management of malls is a long-term and a highly capital-intensive investment for most real-estate developers, especially when compared to construction of office or residential real estate. 'REITs offer an opportunity to landlords and developers to dive into retail real estate as more liquidity would be infused in the market with investors buying into retail assets,' says Kaul. 'Mall developers will be able to secure funding for construction and exit retail projects more easily by selling off stakes to investors. Existing Grade-B mall stock can find takers owing to attractive yield rates, whereas Grade-A mall stock will offer high return on investment opportunities to the REIT investors,' adds Kaul. Mahajan, too, sees a lot of opportunities opening up with REITs. 'It should create a favourable environment for investments to develop quality malls.'

Welcoming opportunities Malls have become evolved experience centres, and the support or ancillary industries contribute significantly to them. There are opportunities galore for industries including elevators, escalators, ambient lighting and flooring innovations, fatade, glass and air-conditioning, which are in sync with evolving technologies.

'In shopping malls, unlike other real-estate projects, along with developers the retailers, too, invest a lot of money in getting their stores ready with the latest fittings and fixtures, design trends and best lighting materials to create a great shopping experience,' says Mahajan. 'Malls also support logistics and, hence, a lot of employment is created for skilled and semi-skilled workers.'

Further, Ali adds, 'With the advent of sustainable methods of energy conservation and people's preferences shifting towards convenient and appealing shopping experiences, the support industries have advanced their processes. Some key highlights include complete surveillance of the mall with CCTV cameras and security measures with the help of baggage scanners and metal detectors; smart lighting systems to conserve power as per MoEF norms, equipped with motion sensors linked to lux levels; maintenance of ambient temperature within air-conditioned areas at +/-24oC, as per AHRE standards for the comfort of customers; and usage of environment-friendly paints to avoid thermal load and water penetration into the building.'

Malls are, by their very nature, infrastructure-intensive. 'So, new retail developments will automatically mean that all supporting industries will benefit from this growth pattern,'says Mirchandani.

With demand surging for all, India is evidently writing the next chapter in its big fat mall story.

QUICK BYTES

Around 20 million sq ft of shopping mall supply is expected to come up by 2020.

Launch of REITs in India has enhanced the ticket size investments in retail.

Rapidly emerging retail growth corridors of the next decade: Hyderabad, Pune, Chennai, Kolkata and other cities.

Managing Malls Malls see high footfalls, which put a lot of strain on its infrastructure and services. These pressures demand the services of professional facility management (FM) companies, which have the know-how to maintain the asset as well as monitor traffic and footfalls appropriately. The gamut of services being offered by FM companies such as SILA include MEP services, soft services, security services, pest control and façade cleaning as well as footfall analysis, customer behaviour and purchasing patterns. The latest developments in technological systems in FM are deep learning, robotic cleaning machines, augmented and virtual reality and wireless protocols.

'With mall stock projected to grow strongly in the next few years, FM companies need to realign their service offerings keeping in mind the technology and data available,' says Kunal Lala, Vice President, SILA. 'The role of an FM company will evolve from being an ancillary support service provider to someone who can help with critical decisions with regard to mall management, owing to the data and information they possess. This transformation will be further accentuated via the use of data-generating technologies such as visitor sensors and operational efficiencies through robotics, augmented and virtual reality. A progressive FM company will imbibe such technologies to increase their service offerings for malls right from the planning through to the completion stages.'

- Seraphina D'Souza

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